Industrial real estate speculators in the Lower Mainland are facing higher vacancies as a glut of new space has collided with a downturn in leasing activity.
During the second quarter, negative absorption levels and more than 472,000 square feet of new supply drove the industrial vacancy rate up to 5 per cent, a full percentage point higher than a year earlier, reports a study by Cushman & Wakefield. Lease rates, meanwhile, haven't budged since 2009 and remain in the $6.80 per square foot to $9.80 per square foot range. Land values have also not changed in the past year, yet remain the highest in Canada at between $1.1 million to $1.6 million per acre.
Speculative construction accounted for 130,000 square feet coming to the market in the second quarter, and it makes up the bulk of new product under construction. According to Cushman Wakefield, there is approximately 795,000 square feet of industrial spec development underway for delivery in late 2011 and through to 2013, all of it in Richmond and Burnaby.
While new supply was up in the second quarter, absorption levels turned negative, with nearly 240,000 square feet "given back to the market", the report states. This compares with 523,000 square feet of positive leasing in the first quarter of this year.
Cushman& Wakefield said there is a growing trend toward strata industrial – where property is sold rather than leased – and towards domestic clients. "Gone or reduced in size are many U.S.-based industries that relied on North America-wide trade," the report explains.
